Analysis On Benefit-inputting Related Party Transaction

With the prevalence of multinational, parent & subsidiary company and head office & filiale nowadays,related party transactions are universal in companies'operation all over the world. According to Zou Xiong(2005), 498 listed companies of Shenzhen stock market have released annual reports until May 10th 2005, of which 401(80.5%) had related party transactions. It's obvious that related party transactions are prevalent in China's securities market, which leads to a large number of studies on it. While most of studies are from the"tunneling"point of view, few have focused on the phenomena that related parties transfer benefit to list companies, not to say study it systematically and deeply. This mistaken cognition results in the ignorance of positive effect of related party transactions.This paper focuses on the phenomena that related parties transfer resource or profit to listed companies. The analysis of present situation reveals that related party transactions are of two characteristics. On one hand, it's used as a means of earnings management by many listed companies, a few of them get sound performance through enhancing gross profit, reducing expense or other improper related sales and purchase, others are able to remain in or return to stock market by selling out assets with extortionate price to related parties. On the other hand, the positive related party transactions also help many listed companies implement strategy transformation successfully or improve the operation process. In concrete, this paper is divided into five chapters:Chapter one analyzes the research background and the concerning research results of Chinese and foreign academic circles, and puts forward the research meaning, framework, contents and creation.Chapter two analyzes the basic theory of benefit-inputting related party transactions. This part firstly introduces the concerning basic theory, and then turns to conclude the definition and types of benefit-inputting related party transactions. Chapter three analyzes the present situation of benefit-inputting related party transactions from two points of view: earnings management and strategy arrangement. At first, the author focuses on the present situation of earnings management taken by listed companies through benefit-inputting related party transactions. Considering the difficulties in collecting correlative data, this paper concentrates on listed companies with benefit from minus to surplus and listed companies with stock-dividend, concluding the primary types of benefit-inputting related party transactions by analyzing the different trends of fore-and–aft related party transactions in each condition. To help form a deeper understanding of those types of benefit-inputting related party transactions, the subsequent analysis is combined with cases. Secondly, the author turns to the analysis of relationship between benefit-inputting transactions and strategy, which is consisted of three parts: reducing transaction cost while obtaining competition advantage, strategy transformation, and being more independent from parent company through streamlining industry chain. Finally, this paper draws a conclusion that benefit-inputting related party transactions with purpose of earnings management should be restricted, while the ones with purpose of strategy arrangement should be supported.Chapter four analyzes the existing problems and advances suggestion. This part's analysis is from three points of view: the institutional aspect, the media aspect and the enterprises aspect. In each aspect, the author firstly analyzes the existing problems and then puts forward suggestion accordingly. From the institutional aspect, analysis and suggestion are offered from the establishment, improvement and implement of institution. From the second aspect, the author advances suggestion to help enhance their independence which is the media'weakness. From the enterprises aspect, the author mainly offers three methods: increasing transparence of information disclosure concerning the relativity between benefit-inputting related party transactions and operation or strategy, streamlining internal decision-making process of related party transactions and exerting independent directors'influence.Chapter five makes a conclusion of this paper, and points out it's limitation and the study direction in the future.